As Failed Merger Recedes, Omnicom Revenue and Income Growth Picks Up

Across Four Major Disciplines, Revenue from Advertising Increased the Most

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Omnicom CEO John Wren, who once planned a mega-merger with rival Publicis Groupe.
Omnicom CEO John Wren, who once planned a mega-merger with rival Publicis Groupe. Credit: Bloomberg

Worldwide revenue at Omnicom Group increased 6.4% to $3.87 billion in the second quarter of 2014 compared to the second quarter in 2013. Net income increased 12.3% to $325.2 million.

Financial results picked up steam after a first quarter in which the agency holding company's revenue increased 3% and net income grew only 0.2%. Omnicom's 2013, which was dominated by the news of its plan to merge with rival Publicis Groupe, saw revenue grow 2.6%. The companies called off the merger this May.

Still, second-quarter results included $1.8 million of pre-tax charges in connection with the proposed merger with Publicis, mostly due to professional fees, the company said. (Publicis also announced its second-quarter earnings today.)

Omnicom owns creative agencies including TBWA Chiat Day, DDB and BBDO; media buying and planning shops such as PHD and OMD; and PR shops including Fleishman-Hillard and Ketchum.

Omnicom's U.S. revenue increased 7.8% from the second quarter last year, to $2.05 billion, while international revenue grew 4.9% to $1.82 billion.

Organic revenue, encompassing continuing operations and excluding the effects of events such as acquisitions, increased 7.9% in North America, 2.1% in Europe, 5.1% in Asia Pacific, 7.8% in Latin America and 2% in Africa and the Middle East.

Across disciplines, organic revenue from advertising saw the biggest boost at 10.5% while public relations increased 4.1%, customer relationship marketing was up 1.1% and specialty communications was essentially flat with 0.2% growth.

"It's the strongest organic growth we've had in a while," said CEO John Wren. "We're on track to meet 2014 revenue and margin targets."

"The biggest driver was the company's performance in the U.S.," he added. Organic revenue growth of 8.8% was propeled by media operations, he said, including continued strong results in search, social media and programmatic trading.

He also cited $2 billion in new business wins in the first half of the year, including Johnson & Johnson, Sony, Heinz and several new assignments from the pharma sector.

Omnicom also used the opportuinty of the earnings discussion to emphasize that it would continue to define digital not as a business but as a medium or technology, implying that it will continue to focus on diversifying its existing creative agencies rather than investing in large digital agencies. That seemed to be an attempt to draw a contrast with Publicis, which has touted its strengths in its digital agency businesses and its plans to buy more.

As he did on the last earnings call, Mr. Wren called out analytics group Annalect and digital trading group Accuen as high priorities given their strong performance. Accuen revenue was up $30 to $40 million year-over-year, said Omnicom CFO and Exec VP Randall Weisenburger, calling it a "newish business."

"We are buying specific media and we are re-selling that at a -- hopefully, an increased price, in most circumstances," Mr. Weisenburger said, "since the profit that we make our revenue or our return is going to be based upon the difference between that purchase price of the media and the sale price of the media."

It's rare for media companies, aside from WPP, to publicly talk about acting as a principal rather than an agent in digital media buying. But the numerous questions about programmatic buying and digital trading on the earnings call suggested an appetite for more understanding about how adland is profiting from digital media buying, particularly as digital video opportunities arise.

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CORRECTION: An earlier version of this story incorrectly attributed discussion of Accuen on Omnicom's earnings call to CEO John Wren instead of CFO Randall Weisenburger.

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